Putin, Poroshenko talk as Kiev holds Moscow troops

Minsk (AFP) - The presidents of Russia and Ukraine on Tuesday sat down to crunch one-on-one talks over heavy fighting in east Ukraine as the Kremlin admitted for the first time its troops had entered its neighbour's territory.

Ukrainian President Petro Poroshenko and Russian leader Vladimir Putin began a key bilateral meeting after six hours of difficult negotiations alongside top EU officials in Minsk aimed at defusing a crisis some fear could lead to all-out war between Kiev and Moscow.

There had seemed little hope for a major breakthrough after the conflict appeared to escalate when Ukraine released footage hours ahead of the talks purporting to show 10 Russian soldiers it had captured on its territory.

A Moscow military source claimed the soldiers had crossed into Ukraine "by accident".

"In Minsk at this meeting the fate of the world and Europe is being decided," Poroshenko said in Russian as the earlier roundtable meeting started with Putin alongside top EU representatives and the leaders of Kazakhstan and Belarus.

Putin, however, barely mentioned the brutal fighting that has killed some 2,200 people in the east of Ukraine since April in remarks at the start of the group talks, focusing instead on the damage Kiev's recent agreement with the EU could have on Russia's economy.

On Tuesday it was announced that the Russian economy is nearing recession. At the same time it was also reported that the Ukrainian currency slid to a new record low against the dollar.

On the ground, battles raged in east Ukraine, an AFP journalist reported fierce shelling in a town close to the Russian border where Kiev accuses Moscow of trying to open up a "new front" into government-held territory.

Belarussian leader Alexander Lukashenko said ahead of the Putin-Prososhenko pow-wow that the Ukrainian leader had called for a "contact group" to meet in Minsk Wednesday to discuss ways to resolve the fighting in east Ukraine.

"It has been proposed to convene the group as soon as possible. Petro Poroshenko insists the meeting should be tomorrow," Lukashenko told journalists, without specifying who would be in the group.

Previously representatives of Ukraine, Russia and the Organisation for Security and Cooperation in Europe have met to negotiate the crisis.

Lukashenko also said Putin had called for economic difference between Russia and Ukraine to be ironed out before Kiev ratifies its agreement with the EU in September.

- Soldiers captured -

Kiev's security service said on Monday that paratroopers from Russia's 98th airborne division had been captured by Ukrainian forces about 50 kilometres (30 miles) southeast of the main rebel stronghold of Donetsk.

Ukrainian media aired footage purporting to show the Russians telling an interrogator that they crossed into Ukraine in armoured convoys.

A Russian defence ministry source on Tuesday said soldiers had been "taking part in patrolling a section of the Russian-Ukrainian border".

"They crossed it most likely by accident, on an unequipped, unmarked section", Russian news agencies quoted the source as saying.

Kiev has long accused Moscow of stoking the separatist insurgency raging in its east -- charges the Kremlin has repeatedly denied.

- 'New front' -

Ukraine's forces accused Russian troops of trying to open a "new front" after an armoured convoy crossed onto government-held territory Monday in the south of Donetsk region.

AFP journalists reported shelling in Novoazovsk, a town on the coast of the Azov sea, and had to briefly take shelter in the City Hall together with the mayor.

Kiev also accused Russian army helicopters of launching a ferocious missile attack on a Ukrainian border position further to the north, killing four border guards and bringing the death toll to 12 soldiers in the past 24 hours.

Local authorities in the main rebel bastion of Donetsk said three civilians were killed in shelling overnight as the army pummels insurgent fighters.

Officials from the EU and Russian-led Customs Union were set to discuss the crisis and trade issues after Ukraine's new pro-Western leaders signed a landmark deal with the European Union in June that riled Russia.

The refusal by Kiev's former president Viktor Yanukovych to ink the EU deal last year in favour of Moscow's economic bloc sparked the protests that eventually led to his removal and set off a chain of events that saw Russia annex Ukraine's Crimea region and the pro-Moscow insurgency.

As Ukraine's political transition continues, Poroshenko on Monday announced long-awaited early parliamentary elections for October 26.

The Kremlin announced plans on Monday to send another aid convoy into eastern Ukraine "this week".

Russia unilaterally sent about 230 lorries carrying 1,800 tonnes of "humanitarian" aid to the rebel-held city of Lugansk on Friday.